Ministers have refused to consider regulating payday lenders until next summer despite a rapid expansion of high-cost lending and firms targeting borrowers over the Christmas period.

Critics said the government had chosen to 'kick the issue into the long grass' when the rapid growth of payday lending meant action was required now, particularly with Christmas around the corner when families will be more vulnerable than ever to high cost loans.

Last week, Jo Swinson, the Lib Dem MP and Minister for Employment Relations and Consumer Affairs, told parliament that the Government would wait to see if payday lenders could improve their behaviour through voluntary codes of conduct that are being implemented by trade associations.

Jo Swinson, the minister for Employment, Relations and Consumer Affairs, said it made sense to wait for an update on voluntary controls on payday lenders before considering government sanctions that are being caled for by MP Stella Creasy.

The stance was slammed by Stella Creasy, the Labour MP for Walthamstow who has led campaigns in parliament to curb payday lending.

She said: 'I warned ministers in 2010 that they were facing a debt crisis if they didn’t stop these companies exploiting our lax credit regulation - two years on and they have done nothing and millions more are now facing a debt laden Christmas and new year.

'When the evidence is so clear of the problems now facing millions in our country it is simply inexcusable for the Government to refuse to act. They urgently must stop blocking legislation to cap the costs of credit and protect British consumers from these legal loan sharks.'

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Research this week by insolvency practitioner R3 claimed 5million adults are considering taking a payday loan in the next six months - an approximate 50 per cent increase since this time last year. One of the largest payday lenders, Wonga, recently revealed its turnover soared 225 per cent in the last year. It approved 2.5million loans - up 296 per cent.

But despite the expansion of lending the government is prepared to wait to see in voluntary codes of conduct can improve practices in the industries. In a written answer to Parliament on Friday Ms Swinson had said: 'We... recognise that a voluntary approach can deliver real improvements in consumer protection more quickly than Government regulation.

'The codes are to be implemented by individual lenders by 26 November 2012, and we expect that these revised codes will deliver enhanced consumer protections.'

The success of the codes will be judged by the trade associations themselves next summer.

The four trade associations - the Finance & Leasing Association, Consumer Finance Association, the Consumer Credit Trade Association and the British Cheque & Credit Association - and the Citizens Advice Bureau will monitor lenders' compliance with the code.

The codes require that firms 'trade honestly, responsibly and treat customers with respect', and do not 'misrepresent facts to a customer concerning any aspect of a credit transaction'.

Payday lenders charge sky-high rates of interest - APRs of 2,000 per cent are typical - for short-term loans. The loans are controversial and lenders have been dubbed 'legal loan sharks'.

Adverts for payday loans have previously been criticised for trivialising the cost of borrowing. The danger is increased because lenders will often pay for customer leads from separate broker firms who also tout for borrowers.

The trade associations that will monitor
the codes of conduct cover 90 per cent of the payday lending market,
but do not cover lead generation companies.

An internet search for 'payday loans'
brings up multiple results for sites that appear to be for payday
lenders, but which are actually run by lead generation operations. They
invite visitors to enter their details and then sell these on to
lenders.

Some specifically target Christmas spending and urge borrowers to use the high-cost loans to pay for presents and festive food.

For example, christmascashloansfast.co.uk tells visitors: 'The festival of Christmas comes with lots of expenses and family demand good amount (sic) to celebrate the festival. Well Christmas payday loans offered at Christmas Cash Loans give you handy cash help at cheap and friendly interest rates.'

The site specifies typical APRs of 1,737 per cent.

The codes says lenders should 'take all reasonable steps to ensure, where applicable, that brokers, lead generators and any other intermediaries do not misrepresent facts regarding such transactions to a customer'.

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